Law lets investors crowdfund

posted Jul 12, 2014, 11:24 PM by Siamak Ebarhimi

Hoosiers who don’t have a fistful of cash now have a new option
to become equity investors in Indiana businesses.

The
secretary of state’s office has developed new rules that allow individuals to
use crowdfunding to invest up to $5,000 at a time in privately owned
businesses. It also permits Hoosier entrepreneurs to use the popular online
fundraising strategy to raise up to $2 million to start or grow a privately
owned business.crowdfunding marketing

State
lawmakers this year passed legislation on crowdfunding that went into effect
July 1 and led to this opportunity for small investors to support homegrown
firms.

“It
is intended to be one more tool to help Indiana companies get off the ground
and stay productive,” said Secretary of State Connie Lawson. “This new market
will change the way Indiana entrepreneurs and investors connect.”crowdfunding advertising

Traditional
crowdfunding began as an online fundraising strategy to allow the public to
donate small amounts of money. More typically, the money is donated through
social networking websites to help artists, musicians, filmmakers and others.

But
under the new law, businesses can use crowdfunding to attract investors.indiegogo marketing

“It’s
going to be really important for a lot of small businesses throughout Indiana
to be able to raise funds this way,” said Jason Whitney, executive director of
the Innovation Center, a business incubator in Richmond. “I’m really proud of
the state of Indiana for taking this step forward and being one of the first
states to offer this for our entrepreneurs.”

Two
other states, Michigan and Wisconsin, started crowdfunding online investment
programs this summer, said Lawson. Georgia and Kansas have similar investment
opportunities but not online.

Nationally,
Congress passed in April 2012 the JOBS Act, which instructed the Securities
Exchange Commission to draft rules to implement crowdfunding. But rules haven’t
been created yet.kickstarter marketing

In
Indiana, the online crowdfunding can be used in conjunction with more
traditional financing options, according to Lawson. But with more smaller
investors, crowdfunding might allow entrepreneurs to better stay in control of
the vision and direction of their businesses, she said.

Previously, she said the only people who could invest in private
business offerings were “accredited investors” — those with $1 million net
worth or an individual income of $200,000 or joint income of $300,000. During
the Great Depression, the federal government banned private companies from
soliciting investments from the general public to limit fraud.kickstarter project

But
Lawson, speaking at The Speak Easy, an Indianapolis site for entrepreneurs,
startups and supporters to work and collaborate, said so much more transparency
exists now because of the Internet, so this restriction is no longer needed.

Still,
investors need to be wary.

“Hoosiers
need to be aware of the risks before they invest, and they should always do
their research before investing,” said state Securities Commissioner Carol
Mihalik, who helped develop the rules with staff and the advice of local
businesses.

Rules
under the new law help limit the risk. Businesses that want to participate have
to register with the secretary of state’s office and submit their offerings and
financial information and the names of their escrow agent and Internet hosts.
If companies don’t want to submit their financial data, they can raise only up
to $1 million.CrowdFunding advertizing

Investors
visit the Internet host sites to find and learn about companies in which they
want to invest. Funds anyone invests will be directed to an escrow account
until the business has raised the amount of funds it committed to raise in a
period of time it chooses.

If
all the money is raised in time, the funds are invested in the company. If not,
investors get their money back.

“We
will monitor crowdfunding just like any other security,” said Lawson.

She
doesn’t expect a great influx of businesses using this method at first, but she
expects it will catch on as more businesses realize its benefits. Lawson said
the crowdfunding could be helpful to businesses such as restaurants, breweries,
organic farms, tech firms and other startups.

But
it also might be a bit of a hassle.

Jim
Brown, founder of PorchLight, an app to help people manage home improvement
projects, is being cautious and taking a wait-and-see approach. His app, now
being tested in about 50 homes in Hamilton County, gives homeowners information
on upkeep, lawn care and when and how the work needs to be done. He hopes to
launch it in September throughout Indianapolis.CrowdFunding marketing

“If you try to raise $2 million, $5,000 at a time, that’s a lot
of people to have to manage and send reports to and keep up to date,” he said.
“That’s a bit of a challenge.”

The
crowdfunding looks helpful, Brown said, but it actually might be harder to
raise money this way than from the traditional type of investors. He also said
the $5,000 limit is too low and could be higher, like the $10,000 limit in
Michigan.Kickstarter Marketing

Whitney
agrees that limit is somewhat low if a business is trying to raise $1 million
or more from smaller investors.

“But
from what we see in Richmond, there is a higher number of people who are really
looking for that smaller amount of money,” he said. “So, it should have a
greater impact for those smaller companies to be able to stay open or grow and
hire more people into the workforce.”Indiegogo Marketing

He
believes several startups that are tenants in his Innovation Center might take
advantage of this opportunity to raise smaller amounts of money.

“This
would give me an opportunity to invest in other businesses, too,” said Whitney.

Since
the Midwest is a fiscally conservative area, he said, he expects getting people
enthusiastic about high-risk opportunities might take some time.

“But
once people see how it’s going to affect their community,” he said, “they might
be more willing to invest.”crowdfunding websites